The huge multistate settlement that UnumProvident reached with regulators in 2004 is continuing to cost the company, which on Wednesday said it will add $86 million to its reserves to pay previously denied or terminated disability benefits.

The company said the money will pay claims that it reopened as part of the agreement with 46 states, including Maine, in November 2004.

The agreement came in response to allegations that UnumProvident had improperly turned down thousands of disability claims that should have been approved. A separate agreement with California regulators was signed last year.

The increased reserves announced Wednesday resulted in a sharp reduction in UnumProvident's first quarter earnings. After including the cost of these additional reserves and other one-time charges, UnumProvident earned $73.4 million, or 23 cents a share, during the first three months of 2006, compared to $152.2 million, or 49 cents a share, during the same period last year, the company said.

Excluding the one-time charges, earnings were $131.2 million, or 41 cents a share, compared to $122.3 million, or 40 cents a share. Prior to Wednesday's earnings release, analysts surveyed by Kiplinger.com had estimated that UnumProvident would earn 43 cents a share this quarter.

The need to boost reserves is a result of an investigation of UnumProvident's claims-handling procedures that came amid allegations and lawsuits that it had turned down valid disability claims. Maine, Tennessee and Massachusetts -- states where UnumProvident has substantial operations -- led the investigation, which found no violations of state laws or regulations but was critical of the company's procedures.

The regulators said UnumProvident relied on its in-house doctors to find reasons to deny claims when it should have used independent doctors; read reports by independent doctors narrowly or incorrectly in searching for a reason to turn down a claim; failed to consider a policyholders' overall health in assessing a disability; and placed too much of the burden on a policyholder to prove a disability existed.

The company paid a fine of $15 million, said it would change a number of internal procedures and agreed to reopen an estimated 215,000 claims that had been denied or closed since Jan. 1, 2000.

UnumProvident initially estimated the price for those items at $127 million, including the fine, $27 million in higher operating expenses and $85 million for claims that it estimated would be reinstated or continued as a result of the reassessments.

Wednesday's action means the cost of paying claims as a result of the reassessment has doubled from the initial estimate, which suggests that more claims had been improperly denied than originally thought.

Maine insurance officials said they aren't surprised that UnumProvident had to boost its reserves.

"When they set the charge and the reserve initially, it was a new thing and they did a good faith estimate," said Eric Cioppa, the deputy superintendent of the Maine Bureau of Insurance. "As they went through the claims, more claimants are getting paid, and that's not a bad thing."

Cioppa said regulators realized that it would be difficult to estimate the cost of paying to benefits in cases where claims denials were reversed.

"We all recognized this was a huge block of claims eligible for reassessment," he said. "I'm not aware of this being done with any company of this scope before and it's kind of uncharted waters."

Cioppa said Maine, Tennessee and Massachusetts regulators are meeting with company officials about eight times a year to monitor compliance with the agreement.

They are also doing spot checks of new claims to make sure the proper procedures are being followed.

The three states plan to launch a broader review at the end of the year, he said. The original agreement called for a follow-up examination -- and a fine of up to $145 million if the company fails that investigation.

UnumProvident increased the amount of reserves because it now has two years of history to work with on reassessing the claims, Thomas R. Watjen, UnumProvident's president and chief executive officer, said in the earnings release and a separate letter to employees, including about 3,500 in Portland.

"We are today in a much better position to quantify the cost to us of the reassessment process and, based on our experience thus far, we have determined that we will likely incur higher costs than initially projected," he said. "We believe we are taking the appropriate actions to satisfactorily put this matter behind us."

Jim Sabourin, a spokesman for UnumProvident, said the company "does not anticipate that there's any impact" on employment as a result of the increased reserves and higher claims payments.